The Sri Lankan government formally handed over control of the strategic port of Hambantota to China last week. The two nations signed a 99 year lease that gives the Chinese almost-complete control of the port as partial payment on the $8.8 Billion debt Sri Lanka owes to the PRC. China’s presence in Sri Lanka has grown over the last five years and the relationship between the two has flourished as a result. Chinese firms have invested billions of dollars to modernize Sri Lankan port facilities as part of the ‘One Belt, One Road’ drive to expand Chinese market reach.

Concern is expanding across South Asia over China’s investment in Sri Lanka and the level of Chinese involvement in the region overall. Instinctively, New Delhi is alarmed, and suspicious of further Chinese encroachment upon its sphere of influence. The Indians are wary of the growing Chinese challenge to its regional hegemony. Consequently situation in Sri Lanka is hitting close to home both literally and figuratively. The island nation is situated just off India’s southeastern coast and it has been firmly inside of India’s orbit for years. India has invested large sums of treasure, and material to stabilize the island. To address the Chinese presence and influence, India has partnered with Japan to develop Sir Lanka’s eastern coastline, and improve the existing infrastructure there. Beyond India, pushback over Chinese investments and influence has occurred in Nepal, Pakistan, and Myanmar.

India-China relations are still on the mend following the Doklam standoff earlier this year. Both nations appear sincere in their desires to see ties continue improving. However, the potential for an economic proxy war in Sri Lanka is quite real. This situation, along with other rising economic and security challenges in the region threaten to disrupt those relations indefinitely. China is aggressively using its economic power to extend its geopolitical influence far beyond its own borders.

With that influence now butting up against Indian shores, the ball is in New Delhi’s court. India’s response could very well define India-China relations for some time to come.